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College Savings 101

Three Things to Know About: Age-based Portfolios

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This article is part of Virginia529’s “Three Things to Know” Investment Portfolio series, highlighting the more than 20 portfolio choices available to Invest529 customers. The information presented below is an overview of the plan’s investment options and should not be considered advice. Before selecting a portfolio consider factors such as the age of your child and your tolerance for risk.

Looking to help take the guesswork out of the investment process? Ready to start investing but you’re too busy to research and build your own portfolio? An age-based portfolio is often a popular option for individuals who don’t feel comfortable navigating the ins and outs of investing.

 

What is an Age-based portfolio?

An age-based portfolio, also known as an enrollment-based fund or target-date fund, is a portfolio that invests based on the date your beneficiary will begin using the funds for higher education.

The targeted enrollment year is identified in the name of the fund. Some 529 plans require account owners to enroll in the specific fund that corresponds with their child’s age, Virginia529 does not make such a requirement.

In Virginia529’s case, age-based portfolios are offered in three-year increments rather than a targeted enrollment year to provide flexibility to investors.  Investors can choose an age-based portfolio that closely approximates the year when they believe funds will start to be drawn. If, for instance, your child is entering kindergarten in the fall, you may consider picking the fund with 2033 portfolio since that signifies the year they would graduate from high school.

Age-based options are generally designed for college savings and were not designed for K–12 time horizons. If you're investing for K–12 goals, you may consider selecting one of Virginia529’s alternate portfolios that aren’t tied to specific time horizons.

 

How does it Work?

Age-based portfolios follow a strategy that annually shifts from riskier investments (think equities) and toward more conservative investments (think bonds and cash) each year as you get closer to using the funds for your child’s post-high school education.

As your child gets older and nears their target enrollment year, Invest529’s age-based portfolios begin to focus on protecting the principal investment --- your contribution--- and shift to fixed income investments while your child is in college in an attempt to limit the potential for risk when the funds are needed to pay higher education costs.

 

Are all Age-based Portfolios the same?

No, all target-date funds are not alike. While age-based portfolios may share the same target (or enrollment) year naming convention across 529 plans, the underlying investment strategies of the actual fund may be different. Given that most age-based portfolios are created in three-year increments, the shift from riskier assets to more conservative investments as the portfolio matures closer to the target date can be different.  The further away the aged-based portfolio is to its targeted enrollment year, the portfolio will be constructed with a goal of generating higher returns albeit with higher risk.  Related: Age-based Portfolio Performance. If you are choosing between various age-based portfolios, it's a good practice to check on your portfolio periodically to assess whether you are in the right portfolio for your personal and financial situation.

 

Key Takeaways:

  • Age-based portfolios provide a simplified way to save for higher education.
  • They shift from riskier investments to more conservative options automatically to protect your investment.
  • Despite their simplicity, it's still a good practice to check on your portfolio periodically.

 

 

Low fees, tax advantages and diverse investment options are reasons Invest529 is consistently ranked among the top 529 plans by independent sources. In its latest annual rating (October 2018), investment research provider Morningstar awarded Invest529 a Gold Morningstar Analyst Rating™ for the third consecutive year.

Review Virginia529’s Age-Based Investment Portfolio

The examples above are provided for illustrative purposes only and are not intended to reflect or predict the actual performance of any specific investment.  Virginia529 cannot and will not provide legal, financial, or tax advice, and nothing herein or in any other written materials shall be construed as such.

For more information on Virginia529’s college savings options, visit Virginia529.com or call 1-888-567-0540 to obtain program materials. These include information on Virginia529 programs, investment objectives, risks, charges, expenses and other important information; read and consider them carefully before investing. Virginia529 encourages prospective participants to seek the advice of a professional concerning any financial, tax or legal implications related to opening an account. For residents of states other than Virginia: before investing, you should consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protections from creditors that are only available for investments in that state’s qualified tuition program. ©2019 Virginia College Savings Plan. All Rights Reserved


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Resources to help you learn

Virginia529 offers free, in-person information sessions at locations across Virginia. These hour-long sessions highlight the program’s three plans, explain the benefits to account owners and give you the chance to get your questions answered. If you don’t live near one of our in-person sessions, Virginia529 offers online webinars where you can learn more from the comfort of your own home.